One of the more difficult tasks in investing can be convincing yourself to buy a stock that has already been on a big run. Buying a stock when it's near an all-time high, or even a 52-week high, requires investors to clear a psychological hurdle. This makes intuitive sense, at least at first. If a stock is already up by a lot, it's easy to imagine that we've missed all the gains.
Fortunately, this is not always the case. The best companies in the world set new all-time highs frequently on their way to market-crushing long-term returns. Sure, buying into these companies earlier leads to better results, but in many cases, an investor can do just fine by picking up shares several years into a great stock run-up.
Here are two stocks that have been soaring over the last year and a half, but that I'd buy right now anyway.
Chipotle Mexican Grill
Over the past year, fast-casual Mexican restaurant chain Chipotle Mexican Grill (NYSE: CMG) is up 51%, well outpacing the S&P 500 's 27% gain. The stock's performance has been propelled by several quarters of impressive and consistent growth. For example, in Q1, revenue increased by 14% year over year while earnings per share grew by 24%. The company also generated $437 million in free cash flow.
Importantly, this growth has been generated by both an increase in the number of Chipotle restaurants and by existing restaurants continuing to sell more. The company grew its total restaurant count by 8% year over year in the quarter while comparable restaurant sales were up 7%.
These metrics tell investors that Chipotle is still delighting its customers and that there is still plenty of growth to be found from adding new restaurants. This combination could mean further strong returns for shareholders.
That said, it is reasonable to ask if the stock might have already gotten too expensive. Chipotle is trading at 67 times its trailing earnings . That isn't cheap, but it is within the historical range of the stock. Premium companies are rarely cheap and Chipotle is no exception.
Amazon
It's hard to believe that at the beginning of 2023, Amazon (NASDAQ: AMZN) was trading at its lowest price since 2019. However, since that point, the stock has rallied and is up 138%. Many investors counted Amazon out during its 2022 plunge, but those who hung on have been handsomely rewarded, as the stock has been setting new highs this summer.
Both the fall and the rebound make sense in context. After doubling its distribution footprint to meet pandemic-fueled demand, Amazon was left with a business that needed to be right-sized as most consumers were able to resume in-person shopping and their e-commerce usage reverted to levels closer to their pre-COVID norms. Amazon's operating income fell significantly from early 2021 through the end of 2022, spooking investors.
AMZN Operating Income (Quarterly) data by YCharts.
In hindsight, it is clear that Amazon just needed time to adjust to that shift, and throughout 2023, its operating income improved dramatically. The turnaround was driven specifically by the e-commerce part of the business, where it was able to get expenses under control. The results over the past year and a half have been impressive.
AMZN Operating Income (Quarterly) data by YCharts.
Amazon trades at 56 times trailing earnings. However, unlike Chipotle, this valuation for Amazon is below its historical levels. Put another way, even after a triple-digit percentage return for the stock over the past year, an argument could be made that Amazon is still inexpensive, historically speaking.
The bottom line for investors
Chipotle and Amazon are fantastic businesses with long track records of success, and neither is showing any signs of slowing down. Their recent stock price appreciation shouldn't be a reason for investors to stay away from either company. Both look to me like compelling stocks to buy right now.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeff Santoro has positions in Amazon and Chipotle Mexican Grill. The Motley Fool has positions in and recommends Amazon and Chipotle Mexican Grill. The Motley Fool has a disclosure policy .
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